JCT D&B contract 2024 clarifies treatment of liquidated damages at termination

The JCT recently introduced its Design and Build Contract 2024. The update gives employers and contractors in the construction industry clarity as to whether liquidated damages for delay can be charged against a slow performing supplier or contractor where the supplier’s contract has been terminated.

This issue lacked clarity prior to the UK Supreme Court’s guidance in Triple Point Technology v PTT in 2021. Now, the updated design and build contract reflects the court’s decision.

Liquidated damages clauses are a common feature of commercial contracts. The clauses are based on pre-agreed sums of money as compensation to customers when projects they have contracted for are delayed as a result of failings by the supplier.

In circumstances where the supplier’s contract has been terminated, there are three competing options on the treatment of liquidated damages. First, that the liquidated damages clause no longer applies, and all losses must be proved. Secondly, the liquidated damages clause applies and the supplier can only be charged until the point of termination. Finally, that the right to liquidated damages continues until a replacement supplier or contractor completes the works.

In the Triple Point case, the court found that the second option applied but warned that the conclusion could depend on the wording of the clause itself. The judgment means that the relevant wording must be examined on a contract-by-contract basis.

“It is therefore welcome that the JCT 2024 clears up any uncertainty for its users,” said James Ladner, construction law expert at Pinsent Masons.

This clarity is provided by the addition of clause 2.29.5. The new clause allows liquidated damages to be charged between the completion date and date of termination of the contract. It also makes clear that for the period after termination, liquid damages may not be claimed. However, “other rights and remedies”, meaning the employer’s common law right to prove general damages, remain.

Ladner said that the updated JCT design and build contract not only provides “well needed certainty to users of that contract” but also brings the contract in line with “the later NEC contracts and what had been previously considered the orthodox approach, and what must now be considered to be the market norm”.